Authority
There is no litigation now pending or, to the best of the Authority’s knowledge, threatened which (i) seeks to restrain or enjoin (A) the sale, execution, issuance or delivery of the 2013 Bonds or (B) the selection of the Authority as the concessionaire for the Project or the execution and delivery of the Concession Agreement and the Project Agreements; (ii) in any way contests the validity of the 2013 Bonds or any proceedings of the Authority taken with respect to (A) the authorization, sale or issuance of the 2013 Bonds, (B) the pledge or application of any moneys provided for the payment of or security for the 2013 Bonds or (C) the Project; or (iii) materially affects the Authority’s obligations under the Indenture, the Concession Agreement or the 2013 Bonds. If such litigation is filed prior to the Closing Date, the pendency of such litigation might permit either or both parties to terminate the Concession Agreement without liability were an injunction to be issued.
The Authority is involved in several claims and lawsuits arising in the ordinary course of business. The Authority believes that any liability assessed against the Authority as a result of claims or
lawsuits which are not covered by insurance would not materially adversely affect the financial condition of the Authority.
City
On May 25, 2013, Joseph S. Hilliard (the “Plaintiff”), a citizen of the City acting as his own lawyer pro se, filed a complaint (the “Complaint”) against the City and the President of the City Council of the City (the “Hilliard Lawsuit”) in the Lehigh County Court of Common Pleas (the “Court”). The Complaint alleges that the City Council meeting (the “Meeting”) held on April 25, 2013 violated the Pennsylvania Sunshine Act and requests, among other things, that the Court invalidate the actions taken by the City Council at the Meeting. At the Meeting (in which Plaintiff participated), the City Council adopted a resolution (the “Resolution”) that authorized the execution of the Concession Agreement and related documents and further enacted an ordinance (the “Ordinance”) providing that the rates, services charges and other fees for the supply of water and for sewage service be established in accordance with the Concession Agreement and repealing any inconsistent prior ordinances.
The Complaint alleges that the City failed to: (1) respond to a letter sent by Plaintiff on April 22, 2013 seeking the Authority’s “complete bid proposal” prior to the Meeting, and (2) include sewer service charges in the Ordinance. The thrust of the Complaint appears to be that by not having access to these documents and information, the Plaintiff was prevented from effectively participating in the public comment period of the Meeting, and therefore the adoption of the Resolution and the enactment of the Ordinance were in contravention of Pennsylvania’s Sunshine Act.
On June 25, 2013, the City Solicitor of the City filed preliminary objections (“Preliminary Objections”) and requested that the Court dismiss the Hilliard Lawsuit because the Plaintiff improperly failed to effect service of process on the City, and on other procedural grounds. Based on a review of the court docket as of 11:31 am on July 22, 2013, the Plaintiff did not file a response to the Preliminary Objections by the July 15, 2013 deadline and the Court had not yet issued any ruling on the Preliminary Objections. If the Court sustains the Preliminary Objections and dismisses the Hilliard Lawsuit, the Plaintiff may appeal within a period of 30 days from the date of such ruling. The City intends to contest vigorously the Hilliard Lawsuit on procedural and, if necessary, substantive grounds. While it is not possible to predict with certainty the outcome of any litigation, the City Solicitor believes that there is a very strong likelihood that the Court will dismiss the Hilliard Lawsuit on procedural grounds due to lack of personal jurisdiction over the City and the President of the City Council of the City.
Moreover, Dilworth Paxson LLP, which has acted and is acting as Special Counsel to the City in connection with the concession of the Concessioned System pursuant to the Concession Agreement, at closing and delivery of the 2013 Bonds, will deliver its opinion to the Underwriter to the effect that, regardless of how the Court may rule on the Preliminary Objections, the claims made in the Complaint are without merit. It should be noted that it is not possible to predict with certainty the outcome of any litigation, including the litigation described above.
In the event that the Court determines that the Meeting was held in violation of the Sunshine Act, the Court would be permitted, but not required, to find the adoption of the Resolution and enactment of the Ordinance invalid. Such a finding would not prohibit City Council from taking subsequent actions to ratify the adoption and enactment at a subsequent meeting held in compliance with the Sunshine Act. In addition, see “CONCESSION AGREEMENT – City Representations and Warranties; Indemnification”
and “THE 2013 BONDS – Events of Default; Remedies” for a description of possible consequences under the Concession Agreement and the Indenture if the Plaintiff were to prevail and the Court found that the adoption of the Resolution and the enactment of the Ordinance at the Meeting was invalid and the invalidity finding was not otherwise cured.
Other than as described above, there is no litigation now pending or, to the best of the City’s knowledge, threatened which (i) seeks to restrain or enjoin the selection of the Authority as the concessionaire or the execution and delivery of the Concession Agreement and the Major Project Documents to which the City is a party; (ii) in any way contests any proceedings of the City taken with respect to the Project; or (iii) materially affects the City’s obligations under the Concession Agreement or the Major Project Documents.
UNDERWRITING
Goldman, Sachs & Co. (the “Underwriter”) has agreed to purchase the 2013A Bonds at an underwriting discount of $_______, the 2013B Bonds at an underwriting discount of $_______ and the 2013C Bonds at an underwriting discount of $_______ from the public offering prices set forth on the inside front cover page of this Official Statement pursuant to a bond purchase agreement entered into by and between the Authority and the Underwriter. The Underwriter will be obligated to purchase all of the 2013 Bonds if any 2013 Bonds are purchased. The Underwriter reserves the right to join with dealers and other underwriters in offering the 2013 Bonds to the public. The obligations of the Underwriter to accept delivery of the 2013 Bonds are subject to various conditions of the bond purchase agreement. Pursuant to the bond purchase agreement, the Authority has agreed to indemnify the Underwriter against certain liabilities based on claims under the federal securities laws.
The Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services.
In the ordinary course of its various business activities, the Underwriter and its affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for its own account and for the accounts of its customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the Authority (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the Authority. The Underwriter and its affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
RATINGS
Standard & Poor’s Rating Service (“Standard & Poor’s”), a division of The McGraw-Hill Companies, assigned its rating of “A” with a stable outlook to the 2013 Bonds. This rating reflects only the views of Standard & Poor’s. Investors may obtain an explanation of the significance of the ratings from Standard & Poor’s, as follows:
Standard & Poor’s Rating Service 55 Water Street
New York, New York 100410 (212) 438-2400
www.standardandpoors.com
As part of the process of obtaining public ratings for the Series 2013 Bonds, the Authority submitted certain materials and other information and requested private “credit assessments/indicative ratings” from Standard & Poor’s and Moody’s Investors Service, Inc. (“Moody’s”). Based on the rating
levels provided by the rating agencies approached in conjunction with ascertaining such private credit assessments/indicative ratings, the Authority selected Standard & Poor’s as providing the most favorable rating level to publicly rate the 2013 Bonds. Had the Authority selected Moody’s to rate the 2013 Bonds, there can be no assurance to the investors that a Moody’s rating would not have been materially less favorable than the Standard & Poor’s rating that the Authority selected.
Other credit rating agencies that the Authority has not engaged to rate the 2013 Bonds may nevertheless issue unsolicited credit ratings on the 2013 Bonds. If any such unsolicited ratings are issued, the Authority cannot assure you that they will not be different from those ratings assigned by Standard &
Poor’s. The issuance of unsolicited ratings on the 2013 Bonds that are different from the ratings assigned by Standard & Poor’s may impact the value of the 2013 Bonds.
Although unsolicited ratings may be issued by any rating agency, a rating agency might be more likely to issue an unsolicited rating if it was not selected after having provided preliminary feedback to the Authority.
Generally, each rating agency bases its ratings on that information and on independent investigations, studies, and assumptions made by that rating agency. Investors have no assurance that ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by a rating agency if, in the judgment of that rating agency, circumstances warrant the revision or withdrawal. Those circumstances may include, among other things, changes in or unavailability of information relating to the Authority, the City, the Concessioned System or the 2013 Bonds being offered. Any downward revision or withdrawal of a rating may have an adverse effect on the market price of the 2013 Bonds.
The Authority undertakes no responsibility either to bring to the attention of the owners of the 2013 Bonds any downward revision or withdrawal of any rating obtained or to oppose any such revision or withdrawal.